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Who Will Reap the Dividends of Fuel Economy?

By
Felicity Barringer

The New York Times

May 20, 2011

There are two basic arguments over whether and how the country should respond to climate change and other environmental challenges. One focuses on government’s right to regulate industry, and the other on the costs and benefits of such regulation. A new, almost biblical twist to one of these arguments was presented at a recent conference organized by Ceres – when it comes to automobile fuel economy, two analysts suggested, the worst shall do best.

There are two basic arguments over whether and how the country should respond to climate change and other environmental challenges. One focuses on government’s right to regulate industry, and the other on the costs and benefits of such regulation.

A new, almost biblical twist to one of these arguments was presented at a recent conference organized by Ceres, a Boston-based nonprofit that brings together investors, companies and environmental organizations who embrace sustainable business practices. twist. When it comes to automobile fuel economy, two analysts suggested, the worst shall do best.

A report by analysts at Citigroup distributed at the conference said that while the fuel-economy standards currently under consideration by the Obama administration would result in a 6 percent increase in industry sales in 2020, compared with their baseline scenario. But for Detroit’s Big Three automakers, which have lagged behind companies like Toyota in this area, sales would increase 8 percent and profits 12 percent.

The report, which leans heavily on analyses by the Transportation Research Institute at the University of Michigan, said that, in playing catch-up on fuel economy, “light trucks and larger cars, in which the Detroit Three sport a greater share, have greater potential to add consumer value through improved fuel economy than do smaller cars and car-based trucks.”

New federal and California fuel-efficiency standards for the model years 2017 to 2025 are to be announced in September. Current rules require auto companies to produce a fleet of vehicles averaging 34.1 miles a gallon by 2016.

The Citigroup report also estimates that by 2015, hybrids’ market share will rise to 3.4 percent from 2.4 percent in 2010, with a combination of new plug-in and fully electric vehicles combined representing 2.6 percent of the market.

Suppliers of pollution-control technology needed to meet the new fuel standards like Johnson Controls and BorgWarner will be “key beneficiaries” of an industry fuel-efficiency standard, according to the report, which estimates that it will reach 42 miles a gallon in 2020.

The report was distributed at a news conference featuring Mary D. Nichols, the chairman of the California Air Resources Board and a reliable advocate of the economic benefits of clean-air regulations.